2015 (3) TMI 321 - HC - Income Tax

Penalty under Section 271B - no reasonable cause for delayed filing of the audit report - Held that - In the case on hand, the assessee filed return of income on 27.3.1990 and the audit report was obtained on 27.4.1990 and submitted during the course of the assessment proceedings. The reason given by the assessee for the delay in submitting the audit report was that the books were impounded on 29.12.1989. The retention of seized/impounded books of accounts and documents is evidenced by the letter dated 29.12.1989 issued by the Assistant Commissioner of Income Tax, Central Circle II-(3), Chennai. Therefore, it is evident that the delay was not intentional, but due to circumstances beyond the control of the assessee Filing of audit report is not mandatory and it is directory. Moreover, the explanation offered by the assessee for the delay satisfies the reasonable cause to be shown by the assessee. - Decided in favour of the assessee.

Summary

Issues:
1. Whether the levy of penalty under Section 271B of the Income Tax Act is barred by limitation of time?
2. Whether the levy of penalty under Section 271B of the Act is justified when there was a reasonable cause for delayed submission of the audit report?

Analysis:

Issue 1:
The appellant challenged the order of the Income Tax Appellate Tribunal regarding the levy of penalty under Section 271B for the assessment year 1987-1988. The core question was whether the penalty imposed on 4.9.1991 was time-barred under Section 271(1)(c) of the Act. The appellant contended that since penal action was initiated on 21.11.1990, the penalty imposed later was beyond the limitation period. However, the High Court did not find the penalty to be time-barred.

Issue 2:
The second issue revolved around whether the penalty under Section 271B was justified considering a reasonable cause for the delayed submission of the audit report. The appellant argued that the delay was due to the impoundment of books by the department on 29.12.1989, which was beyond their control. The High Court analyzed relevant case law, including Commissioner of Income Tax v. Ashoka Dairy, CIT v. Ramkrishna Stores, and ITO v. Nanak Singh Guliani. Based on these precedents, the court concluded that filing the audit report was directory, not mandatory. The delay due to the impoundment of books was considered a reasonable cause. Consequently, the High Court allowed the appeal, setting aside the Tribunal's order and canceling the penalty levy.

In conclusion, the High Court's judgment addressed the issues of time limitation for penalty imposition and the justification for delayed submission of the audit report. The decision was based on the interpretation of relevant legal provisions and precedents, ultimately ruling in favor of the appellant and against the Revenue.